The Investment performance of U.S. equity pension fund managers an empirical investigation.pdf

The Investment performance of U.S. equity pension fund managers an empirical investigation.pdf

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HD28 .M414 no. WORKING PAPER ALFRED P. SLOAN SCHOOL OF MANAGEMENT The Investment Performance of U.S. Equity Pension Fund Managers: An Empirical Investigation T. Daniel Coggin * Frank J. Fabozzi *~^ Shafiqur Rahman *""* W #3360-91 EFA Revised November 1992 MASSACHUSETTS INSTITUTE OF TECHNOLOGY 50 MEMORIAL DRIVE CAMBRIDGE, MASSACHUSETTS 02139
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The Investment Performance of U.S. Equity Pension Fund Managers: An Empirical Investigation T. Daniel Coggin * Frank J. Fabozzi ** Shafiqur Rahman *~-'""' Revised W #3360-91 EFA November 1992 "" Virginia Retirement System *"'• Journal of Portfolio Management *"""" Portland State University To be presented at the Annual Meeting of the American Finance Association, Anaheim, CA , January 1993. We thank Jon Christo- pherson of the Frank Russell Company for providing the pension manager data used in this study. The paper has benefitted from discussions with John E. Hunter and Charles Trzcinka. The opin- ions and conclusions offered in this study do not necessarily represent those of the Virginia Retirement System or the Frank Russell Company.
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M I TUBRARIES DEC 7 1992
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The Investment Performance of U.S. Equity Pension Fund Managers: An Empirical Investigation ABSTRACT This paper presents an empirical investigation of the security selection and market timing performance of a random sample of 71 U.S. equity pension fund managers using monthly returns for the period 1983-1990. The 71 equity fund managers include banks, insurance companiesand investment advisors who have been allocated funds by pension plan sponsors. The data were provided by the Frank Russell Company of Tacoma, WA. While there have been many studies of U.S. equity mutual funds, ours is the first such study of which we are aware of U.S. equity pension fund managers. The estimates of selectivity and timing were derived using the Treynor and Mazuy (1966) model and the Bhattacharya and Pfleiderer (1983) model. The total sample of managers is subdivided into four groups by investment style, and a benchmark portfolio is identified for each style. We also included two benchmarks for the broad equity market. Regardless of the choice of a benchmark portfolio or estimation model, the selectivity measure is positive on average and the timing measure is negative on average. However, both selectivity and timing do appear to be somewhat more sensitive to the choice of a benchmark portfolio (and, possibly, the time period) when managers are classified by investment style. A meta- analysis was performed to quantify the effect of sampling error on the cumulated regression results. In every case, meta-analysis revealed some real variation (in excess of that attributable to sampling error) around the mean values for both selectivity and timing. An examination of the 80% probability intervals for selectivity revealed that the best managers can deliver substantial risk-adjusted excess returns.
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